Correlation Between Fabrinet and RF Industries

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Can any of the company-specific risk be diversified away by investing in both Fabrinet and RF Industries at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Fabrinet and RF Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fabrinet and RF Industries, you can compare the effects of market volatilities on Fabrinet and RF Industries and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Fabrinet with a short position of RF Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fabrinet and RF Industries.

Diversification Opportunities for Fabrinet and RF Industries

0.44
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Fabrinet and RFIL is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Fabrinet and RF Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RF Industries and Fabrinet is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Fabrinet are associated (or correlated) with RF Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RF Industries has no effect on the direction of Fabrinet i.e., Fabrinet and RF Industries go up and down completely randomly.

Pair Corralation between Fabrinet and RF Industries

Allowing for the 90-day total investment horizon Fabrinet is expected to generate 1.06 times more return on investment than RF Industries. However, Fabrinet is 1.06 times more volatile than RF Industries. It trades about 0.08 of its potential returns per unit of risk. RF Industries is currently generating about 0.06 per unit of risk. If you would invest  21,074  in Fabrinet on September 6, 2024 and sell it today you would earn a total of  3,105  from holding Fabrinet or generate 14.73% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Fabrinet  vs.  RF Industries

 Performance 
       Timeline  
Fabrinet 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Fabrinet are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Fabrinet displayed solid returns over the last few months and may actually be approaching a breakup point.
RF Industries 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in RF Industries are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain forward indicators, RF Industries may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Fabrinet and RF Industries Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Fabrinet and RF Industries

The main advantage of trading using opposite Fabrinet and RF Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fabrinet position performs unexpectedly, RF Industries can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in RF Industries will offset losses from the drop in RF Industries' long position.
The idea behind Fabrinet and RF Industries pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
Check out your portfolio center.
Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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